How to get out of debt to buy your first home
Are you keen to buy your first home, but your current debt situation makes it feel almost impossible? Never fear, it is possible to get out of debt and save a deposit for a home - you just need the right support and advice.
Here at Loan Market, we work with hundreds of buyers who want to buy a home but feel overwhelmed with their level of debt. We help them to consolidate and manage the debt, and present them with strategies for not only repaying the debt quickly, but saving for a home deposit too.
Here’s what we recommend to do:
UNDERSTAND YOUR CURRENT DEBT
First up you need to gather all of the information relating to your debt. This is how much you owe, your current interest rates and payment dates. This allows you to have all of your information in one place.
We can help you go through it all to see if debt consolidation would be helpful for you. This is where we combine the debt into one loan, with one repayment amount. It makes the debt much easier to manage, and reduces the chance of missing a repayment and negatively affecting your credit score. Debt consolidation often also saves you money with reduced interest rates and less operating fees. Since all of your focus is now on repaying just one amount at one rate, it can often help massively by removing the feelings of debt overwhelm.
If debt consolidation isn’t right for you, then we encourage you to pay off the debt with the highest interest rate first. Then you can look at paying off debts with smaller balances, which is one less debt to worry about.
WHAT’S YOUR CREDIT SCORE?
If managed correctly, debt won’t affect your credit score. However if you have missed repayments or not paid on time, your credit score can be negatively affected. Your credit score is your total credit history given a score between 1 and 1,000, with 1,000 being the best. A good credit score is deemed 500+, with the higher the better.
Lenders will always check your credit score before granting you a loan, so it’s good for you to know in advance what it is so you can work to make any necessary changes. By repaying debt on time, and managing debt correctly, you can begin to improve your credit score over time, which in turn looks more appealing to banks and lenders.
LET’S BUDGET
To effectively manage your debt and save for a home deposit, a budget is a must. This allows you to see what is coming in vs what is going out. Many expenses are essential, things like rent, utilities and groceries. However the difference between this and your income is your disposable income. This is the amount that you have left over that can be used for either saving or repaying debt.
Creating a budget also allows you to have an overview of where your money is going and what you could potentially cut back on. For example, unused subscriptions are often a big one - apps or gym subscriptions that are never used could be cancelled to free up some money. It also gives you an idea of how much you are spending on things like entertainment, dining out and takeaways, and unnecessary shopping. Once you’ve identified these things, you can work to remove anything that isn’t necessary - you might be surprised at how much money you will free up!
The thought of buying a home can feel overwhelming and impossible when you are burdened with debt, however taking financial responsibility and working to implement debt repayment techniques and budgeting will make all the difference.
Remember it won’t all happen overnight, but through time, patience and discipline you can overcome your debt and head toward buying your first home.
If buying a home is something you can see yourself doing in the future, but you aren’t 100% sure how to get there, then get in touch with us. We’d love to help.